US Elections to See First Prediction Market ETFs Launched by Wall Street

Roundhill Investments is poised to introduce the first US exchange-traded funds tied to prediction markets, with two other asset managers preparing to launch similar products. According to a filing with the US Securities and Exchange Commission, Roundhill will list six funds linked to the control of the White House, Senate, and House by Democrats or Republicans.

The launch is scheduled for May 5. The funds, including the Roundhill Democratic President ETF, Republican President ETF, Democratic Senate ETF, Republican Senate ETF, Democratic House ETF, and Republican House ETF, will gain exposure through swap agreements referencing binary event contracts traded on CFTC-regulated markets.

These contracts settle at $1 if the predicted outcome occurs and $0 if it does not. The prospectus warns that if the targeted party does not win, the fund will lose nearly all its value. Roundhill will not terminate the funds after settlement; instead, once the market prices a winner at above $0.995 or below $0.005 for five consecutive trading days, the fund will treat the outcome as decided and roll into the next cycle.

The prospectus notes that if the market is later proved wrong, there will be no recourse for shareholders. Bitwise and GraniteShares have also filed to list similar funds, with differing structures. The introduction of these ETFs could expand access to prediction markets, allowing them to be held in ordinary brokerage accounts and some retirement accounts.

This development comes after the CFTC withdrew a proposal that would have banned political event contracts, although state regulators continue to challenge the underlying contracts in court. Roundhill has also filed to list non-political prediction market ETFs tied to the possibility of a US recession.